'Entrepreneurs Relief' for limited company what is the best strategy to apply for it?

[Clare@InTouch]

With regards to "Entrepreneurs Relief" ... anyone know the minimum time limit between you shutting down the limited company (and ceasing trading in IT) and then starting up a new Limited company doing the same thing ? is it 6 months / 1 year ? would you have to go via an umbrella in the interim (not v. tax efficient but could Companies House not allow you to set up a Limited Company for trading in IT contracting forever ???!??).

Also what happens if you apply for ESC C16 and HMRC say no you cannot get the 10% tax on Capital gains, can you then back peddle and not proceed with the application ? (I bet in this case there is scope for administration error where someone in HMRC applies to Companies House regardless and your Company is applied to be struck off without your knowledge thus having your assets frozen !).

When you apply for ESC C16 you sign a declaration stating that you are ceasing to trade - obviously you need to be able to prove this was the case in case it's questionned at a later date. Starting a new company 2 months later would be an obvious ruse.

It's not a case of Companies House not allowing you to set up a company, they will allow you to set up as many as you like. The point is that if you tell HMRC you're ceasing to trade and they then investigate at a later date and find you lied, the ESC should not have been given and they will penalise you.

If you apply for ESC C16 and it's refused then you won't be able to take the final money as a Capital Gain. You can back out of the closure process at any time up to the point the company is struck off (and even after then really if you apply for restoration).

The 10% is Entrepreneur's Relief claimed on your personal tax return - it's not part of the company closure itself.

HMRC cannot apply to have you company struck off. The DS_01 form requires the signtures of the shareholders, and the intention to strike off is advertised for at least 3 months prior to the actual dissolution. Companies House will also write to the Director a couple of times before it's done.

[Fishface]

My accountant told me that there will be a 'formal' winding up process on all ltd's next calendar year - which will cost £k's in fees from a insolvency firm.

so...how does one get the money out of the company?

a. leave it in a drip it out as usual

b. pay 18%

c. ?

[jimbob12]

How much is a reasonable fee to close a company down using ESC16 route ?

[Bradley]

4th Technical Consultation

My accountant told me that there will be a 'formal' winding up process on all ltd's next calendar year - which will cost £k's in fees from a insolvency firm.

so...how does one get the money out of the company?

a. leave it in a drip it out as usual

b. pay 18%

c. ?

Your accountant no doubt is referring to the 4th Technical Consultation on the withdrawal of Extra Statutory Concessions. At a time yet to be determined - probably after the summer - you won't be able to treat capital distributions from informal striking-off procedures as capital if the payments are more than £4,000.

This means that you can't get ESC C16 any more on amounts over £4,000.

If you had reserves of £90,000 then you would pay 10% CGT on £4,000 and 25% effective rate on £86,000.

The only way round this is to pay a licensed insolvency practitioner to liquidate the company for you at an average cost of say £2,000.

[eliquant]

If you went for liquidation what negative impact does that have ? will it give the director a bad credit rating for the future ? and what are the tax benefits of liquidation / insolvency ?

[eliquant]

This means that you can't get ESC C16 any more on amounts over £4,000.

If you had reserves of £90,000 then you would pay 10% CGT on £4,000 and 25% effective rate on £86,000.

Hang on ... isn't ESC C16 part of Entrpreneurs Relief where you pay 10% on 'all' of any £5 million over a lifetime evertime you shutdown a company and successfully qualify for it ? what is this £4,000 limit for the 10% CGT ? is ESC C16 and Entrepreneurs Relief part of the same thing or are they completely seperate things ?

[Bradley]

Rip esc c16

Hang on ... isn't ESC C16 part of Entrpreneurs Relief where you pay 10% on 'all' of any £5 million over a lifetime evertime you shutdown a company and successfully qualify for it ? what is this £4,000 limit for the 10% CGT ? is ESC C16 and Entrepreneurs Relief part of the same thing or are they completely seperate things ?

First of all the lifetime limit is £10m - if only!

ESC C16 refers or referred to a procedure whereby you could ask the Revenue for permission to treat dividends paid when informally winding-up as if they were capital gains. The Entrepreneur's Rate - the relief part was abolished with effect from June 2010 - of 10% applies to capital gains. That's the connection.

What I'm saying is that the Revenue will no longer give their permission for the treatment of certain dividends as capital gains if those dividends exceed £4,000. That is because all Extra Statutory Concessions (ESCs) are no longer operated by the Revenue due to the fact that they lost a case which hinged on the Revenue refusing to give permission under the ESC process. As ever the Revenue threw their teddy out the pram and this is the upshot - hardly proportionate is it?